Pre-EMI Interest Claim in ITR: What Is Allowed Under Section 24
- Dipali Waghmode
- Sep 10
- 10 min read
When it comes to tax-saving options, claiming deductions on home loan interest is one of the most popular choices among taxpayers. However, for those who have recently taken a home loan and are in the process of constructing their property, understanding how to claim Pre-EMI interest in your Income Tax Return (ITR) can be a bit tricky. Pre-EMI refers to the partial payment made during the construction phase of the property before it is completed and the full EMI payments begin. Let us understand the concept of Pre-EMI interest, how to claim it in your ITR, the limits for deductions based on property type, and how the old tax regime affects your claim.
Table of Contents
What is Pre-EMI Interest?
Pre-EMI interest is the interest portion of the home loan that you pay during the construction period before the full disbursement of the loan. When a property is under construction, the lender allows you to pay interest on the amount of loan disbursed rather than the full loan amount. These partial payments, also known as Pre-EMI payments, do not include the principal component. The full EMI payments, including both principal and interest, begin once the construction is completed or the property is ready for possession. This means that while the property is being built, you are paying interest on the loan but not yet repaying the principal.
How to Claim Pre-EMI Interest in ITR
To claim the Pre-EMI interest in your ITR, you need to include it under the section for "Income from House Property." The total Pre-EMI interest paid during the year can be claimed as a deduction. However, it is important to note that the Pre-EMI interest cannot be claimed as a deduction in the year it is paid. Instead, it is claimed once the construction of the property is completed and possession is obtained.
If you are eligible to claim the deduction, you will need to provide the following details when filing your return:
The amount of Pre-EMI interest paid during the year
The year in which the construction is completed (to claim the deduction)
The total interest paid along with the principal when you start paying full EMIs
This deduction is available under Section 24(b) of the Income Tax Act, which allows you to claim up to ₹2 lakh in interest deductions per year.
Deduction Limits for Self-Occupied vs. Rented Properties
The deduction available for Pre-EMI interest depends on whether the property is self-occupied or rented.
Self-Occupied Property: If the property is self-occupied, you can claim the Pre-EMI interest as a deduction under Section 24(b) once the construction is completed. The total interest deduction, including Pre-EMI, is limited to ₹2 lakh per year.
Rented Property: If the property is rented out, there is no limit on the amount of interest you can claim as a deduction. In this case, the Pre-EMI interest, along with the full EMI payments once construction is complete, can be claimed in full under the head "Income from House Property."
Pre-EMI Interest Under the Old Tax Regime
Under the old tax regime, claiming Pre-EMI interest is straightforward. You can claim the Pre-EMI interest for the year under Section 24(b) as part of the overall home loan interest deduction. The same deduction limit applies, i.e., ₹2 lakh for a self-occupied property, and no limit for a rented property. The main difference between the old and new tax regimes is that under the old tax regime, you can avail of various exemptions and deductions, including Pre-EMI interest, without the need to give up deductions under other sections.
However, in the new tax regime, where tax rates are reduced, most exemptions and deductions, including those for home loans, are not available. Therefore, if you opt for the new tax regime, you would not be able to claim the Pre-EMI interest deduction.
How to Declare Pre-EMI Interest in ITR
Declaring Pre-EMI interest in your Income Tax Return (ITR) is important because it allows you to claim tax benefits for the interest paid on home loans during the pre-EMI period (the period before possession of the property). The Pre-EMI interest refers to the interest component of your home loan that is paid before the construction of the house is completed. This interest can be claimed under Section 24(b) of the Income Tax Act, which allows deductions on home loan interest payments. Here’s a detailed breakdown of how to declare Pre-EMI interest in your ITR:
1. Collect Your Loan Documents
Before declaring Pre-EMI interest in your ITR, the first step is to gather the necessary documents. These include the loan sanction letter, the statement of interest payments received from the lender, and any other documents that specify the Pre-EMI interest paid during the financial year. Most lenders issue a certificate at the end of the financial year that mentions the total Pre-EMI interest paid on the loan. This certificate is critical as it helps you calculate the exact amount of Pre-EMI interest to declare in your ITR.
2. Fill in the ITR Form
Once you have your documents in place, the next step is to fill in the appropriate ITR form. For most individuals,ITR 1 orITR 2 is applicable, depending on their income sources and other factors. To declare the Pre-EMI interest, follow these steps:
Go to the section of the ITR form labeled "Income from House Property". This section is where you declare any income or loss related to your property, including deductions for home loan interest.
In the section on "Interest on Home Loan", you will need to mention the total interest paid on the home loan. This is where you’ll include both the regular EMI interest payments and the Pre-EMI interest paid during the year.
3. Include Pre-EMI Interest
Pre-EMI interest is treated like regular home loan interest. Therefore, when filling out the "Interest on Home Loan" section of the ITR form, ensure that you include the Pre-EMI interest along with the regular interest paid during the financial year. The Pre-EMI interest will be added to the total home loan interest for the financial year. This means you can claim the deduction on the entire interest paid, which includes both the Pre-EMI and the regular EMI interest.
For example, if you have a home loan where you paid ₹50,000 as regular EMI interest and ₹20,000 as Pre-EMI interest, the total interest eligible for deduction would be ₹70,000. This entire amount should be entered under the "Interest on Home Loan" section in your ITR.
4. Declare the Year of Possession
It’s important to specify the year in which the possession of the property is expected or has been completed. The reason this is crucial is that the Pre-EMI interest is only allowed to be claimed for the financial years before possession, i.e., during the construction phase of the property. Once possession is received and regular EMIs start, the Pre-EMI interest claim stops, and you begin claiming deductions on the full home loan interest under Section 24(b) in subsequent years.
In the ITR form, there will be a prompt or field asking for the year of possession. Make sure to mention the year in which the construction of the property was completed or when possession was taken. This helps the tax authorities understand when your full EMI payments started, and it ensures the Pre-EMI interest is claimed correctly for the right financial years.
5. Keep Track of Pre-EMI Interest Over Multiple Years
If you have been paying Pre-EMI interest for more than one financial year, ensure you track the total Pre-EMI interest paid in each year separately. Pre-EMI interest is often paid during the construction phase of the property, which can span multiple years, and claiming the interest for each year as part of your deductions is crucial for accurate tax filing. You will need to sum up the Pre-EMI interest paid in each year and claim the total amount in your tax return under the home loan interest section.
6. Claiming Deductions for Pre-EMI Interest
Under Section 24(b) of the Income Tax Act, you can claim a maximum deduction of ₹2 lakh per annum on the total interest paid on home loans. The Pre-EMI interest is part of this total home loan interest, so it is included in the ₹2 lakh limit. Keep in mind that this limit applies only to self-occupied properties. If the property is let out, you can claim the full interest amount without any upper limit, subject to other conditions. Ensure that the total amount of Pre-EMI interest is accounted for, and cross-check it with the loan certificate provided by the lender.
Importance of Completion for Claiming Pre-EMI Interest
It is essential to note that Pre-EMI interest cannot be claimed as a deduction until the construction of the property is completed, and possession is taken. If the property is still under construction, the interest paid will not be considered a deduction. Once the property is completed, the Pre-EMI interest paid during the construction period can be added to the total interest for that year and claimed as a deduction under Section 24(b).
Conclusion
Claiming Pre-EMI interest in your ITR can help you reduce your taxable income, but it is crucial to understand the rules around this deduction. The key to claiming this deduction is ensuring that the property is completed and possession is obtained before you can include Pre-EMI interest as part of your home loan interest deduction. Whether you own a self-occupied property or rent it out, the Pre-EMI interest can provide significant tax savings. Make sure you keep track of all the Pre-EMI payments made, and claim them once you meet the eligibility criteria. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1: Can I claim Pre-EMI interest even if the construction is not completed? No, you can only claim Pre-EMI interest once the construction of the property is completed, and you have taken possession of it. While you can pay Pre-EMI interest during the construction phase, tax deductions can only be claimed once the property is ready for possession. If the construction is not yet completed, you cannot include Pre-EMI interest as part of your eligible deductions.
Q2: How much Pre-EMI interest can I claim under Section 24(b)? Under Section 24(b) of the Income Tax Act, you can claim a deduction of up to ₹2 lakh per year for interest paid on a home loan for a self-occupied property. If the property is rented out, there is no upper limit on the amount of interest you can claim. The deduction applies to the interest component of the Pre-EMI payments as well as the regular EMI payments once the construction is completed.
Q3: Can I claim Pre-EMI interest for multiple properties? Yes, you can claim Pre-EMI interest for multiple properties, provided each property qualifies under Section 24(b) and meets the eligibility criteria. The total Pre-EMI interest paid for each property can be included in the overall deduction, subject to the ₹2 lakh limit for self-occupied properties. For rented properties, there is no such limit, and you can claim interest on each loan separately.
Q4: Is Pre-EMI interest claimed separately from regular EMI interest? Yes, Pre-EMI interest is claimed separately from regular EMI interest. Pre-EMI interest is the interest paid during the construction period, while regular EMI interest applies after the property is completed and you begin paying both principal and interest. You need to track both separately and claim them under the "Income from House Property" section of your ITR.
Q5: What is the difference between Pre-EMI interest and regular EMI interest? Pre-EMI interest is paid during the construction period of the property, before the property is ready for possession. This interest is paid on the disbursed portion of the loan during the construction phase. Once the construction is complete, you begin paying both principal and interest, which constitutes regular EMI interest. Pre-EMI interest is for the construction phase, while regular EMI interest applies once the property is ready for use.
Q6: Can I claim Pre-EMI interest under the new tax regime? No, the new tax regime does not allow any deductions, including those for home loan interest or Pre-EMI interest. Under the new tax regime, taxpayers opt for a lower tax rate in exchange for giving up exemptions and deductions like home loan interest. Therefore, if you choose the new tax regime, you cannot claim Pre-EMI interest or any other deductions related to home loans.
Q7: Do I need to wait until the construction is complete to claim Pre-EMI interest? Yes, Pre-EMI interest can only be claimed once the construction of the property is complete, and possession is taken. While you may pay Pre-EMI interest during the construction phase, you cannot claim it as a deduction until the property is finished and you can legally occupy or use the property.
Q8: Can I claim Pre-EMI interest on an under-construction property? Yes, while you can pay Pre-EMI interest on an under-construction property, you cannot claim it for tax deductions until the property is completed. The interest paid during the construction phase can be claimed only once the property is ready for possession, making it eligible for tax deductions under Section 24(b).
Q9: How do I declare Pre-EMI interest in my ITR? Pre-EMI interest can be declared under the "Income from House Property" section of your Income Tax Return (ITR). Once the construction of the property is completed, you can include both the Pre-EMI interest and the regular EMI interest. Ensure you separate the Pre-EMI interest from the principal repayment and correctly report it in the appropriate section of your return to maximize deductions.
Q10: Can I claim Pre-EMI interest for more than one loan? Yes, if you have multiple home loans, you can claim Pre-EMI interest for each loan, provided they meet the eligibility requirements under Section 24(b). You will need to separately calculate the Pre-EMI interest for each loan and include it in your tax deductions, ensuring that the total for self-occupied properties does not exceed ₹2 lakh per year.
Q11: Can I claim Pre-EMI interest for a loan on a second home? Yes, you can claim Pre-EMI interest for a loan taken for a second home, provided the property is eligible for tax benefits under Section 24(b). For self-occupied properties, you can claim up to ₹2 lakh in interest deductions per year. For a second home that is rented out, there is no upper limit on the interest that can be claimed.
Q12: What documents are needed to claim Pre-EMI interest? To claim Pre-EMI interest, you need to provide the home loan statement from your lender showing the interest paid during the construction phase. You should also have proof of possession or the completion certificate for the property to ensure that the Pre-EMI interest is claimed in the correct tax year. Keeping detailed records of your loan disbursements, repayments, and interest statements will help you accurately claim your Pre-EMI interest deductions.
Comments